Friday, November 25, 2016

Trinidad & Tobago holds rate on weak inflation pressure

Trinidad and Tobago's central bank left its benchmark repo rate at 4.75 percent, taking note of "the overall economic conditions, the weak inflationary pressures and the current anticipated trajectory of external interest rates."
The Central Bank of Trinidad and Tobago (CBTT), which has maintained its rate since January 2015, said price pressures were well contained while data showed continued softening of the non-energy sector in construction and distribution in the third quarter while there was curtailed energy sector output relative to the first three quarters of 2015.
Trinidad and Tobago's headline inflation rate declined slightly to 3.0 percent in September from 3.1 percent in August while core inflation, which excludes food prices, rose to 2.3 percent from 2.2 percent.
Trinidad and Tobago's economy remains in recession, with Gross Domestic Product shrinking by an annual rate of 8 percent in the second quarter, the seventh consecutive quarter of shrinkage.
Trinidad's dollar has dropped this year and was also caught up in the overall drop in emerging market currencies following the election of Donald Trump as U.S. president. The TTD was trading at 6.77 to the U.S. dollar today, down 5.2 percent since the star of this year.
The yield differential between TT and U.S. 10-year Treasury securities narrowed to 216 basis points as of Nov. 14 compared with 255 points at the end of October on a growing consensus that the U.S. Federal Reserve will raise rates in the near future, the CBTT said.

The Central Bank of Trinidad and Tobago issued the following statement:

"Since the last Monetary Policy Announcement in September 2016, oil prices rallied to a
15-month high of near US$50 dollars per barrel (WTI) in October, but have declined since.
Though oil prices generally remained low, they improved in the third quarter of 2016 and
averaged US$44.9 compared to US$39.4 in the first half of the year. Meanwhile, production of
crude oil and natural gas, as well as some downstream products, continued to be affected by
maintenance and other stoppages by energy companies, leading to curtailed energy sector output
relative to the first three quarters of 2015. At the same time, early indicators of non-energy sector
activity in the third quarter suggest on-going softening within the construction and distribution
sectors. The latest labour force information from the Central Statistical Office (CSO) put the
unemployment rate at 4.4 per cent during the second quarter of 2016 compared with 3.2 per cent
in the corresponding quarter of 2015.

Overall price pressures remained well contained up to September 2016. According to the
CSO’s Index of Retail Prices (RPI), headline inflation slowed slightly to 3.0 per cent on a year-
on-year basis in September 2016 from 3.1 per cent in August. Core inflation, which excludes
food prices, edged upwards to 2.3 per cent in September 2016 from 2.2 per cent in August.
Faster price increases within the health and clothing and footwear sub-indices led the pickup in
core inflation. Conversely, food inflation slowed to 6.2 per cent by September 2016 compared
with 7.2 per cent in August.
After falling in October, liquidity in the financial system rose slightly in November 2016,
with commercial banks’ excess reserves averaging $3.4 billon daily during the period November
1-21, 2016. The Central Bank removed $725.0 million from the system through open market
operations while the Bank’s sales of foreign exchange to authorized dealers indirectly extracted
roughly $500 million.

Private sector credit growth remained sluggish in September 2016, as lending to
businesses declined for the fourth consecutive month when compared with similar months in
2015. In August and September, business lending registered year-on-year declines of 2.8 per cent
and 1.9 per cent, respectively. Credit to the private sector by the consolidated financial sector
rose to 3.5 per cent in September 2016 from 3.1 per cent in August. As at November 14, 2016,
yield differentials between TT and US 91-day and 10-year Treasury securities stood at 65 basis
points and 216 basis points, respectively compared with 86 basis points and 255 basis points,
respectively at the end of October 2016. Meanwhile, there is a growing consensus among global
financial analysts that the United States Federal Reserve will increase interest rates in the near
future.
At its meeting in November, 2016, the Monetary Policy Committee of the Central Bank
took note of the overall economic conditions, the weak inflationary pressures and the current and
anticipated trajectory of external interest rates. Against this backdrop, the Committee decided
to maintain the “Repo” rate at 4.75 per cent. The Bank will continue to carefully analyse
domestic and international economic developments in its deliberations and decisions.